The thing is, the image is stll rectangular. What you want it transparency. All images are square, but transparanecy gives that effect.
take, fo example, my avatar. it looks like it has rounded edges, when in fact those edges do exist, they're just transparent. Try it yourself by using the eraser tool to reove part of an image. the .gif filetype supports transparency, so use that to save it. You'll see if you then post that image here, you'll be able to see that background colour of the web page throught he part you erased. that;'s all there is to it.
As for the text wrapping, I can't really help you there.
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